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How much is average saving during retirement?
Old 10-13-2007, 02:21 AM   #1
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How much is average saving during retirement?

DW asked me how much do the average people who are retired manage to save each year, over and above their expenses. Other then the obvious inflation factor of ~3%, I really didn't have a clue. I expect many of the FIREd folks here to have a higher savings rate then average, but then I don't know, and thought I'd ask before lying through my teeth giving her the benefit of my wisdom. What's yours and your estimate of the average?
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Old 10-13-2007, 03:35 AM   #2
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Dumb question: why would a retiree want a non-zero savings rate? Wouldn't that mean that their investments are throwing off too much income? Doesn't sound tax efficient to me. (In fact, my high savings rate is a problem I'm trying to fix.)
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Old 10-13-2007, 05:13 AM   #3
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Quote:
Originally Posted by twaddle View Post
Dumb question: why would a retiree want a non-zero savings rate? Wouldn't that mean that their investments are throwing off too much income? Doesn't sound tax efficient to me. (In fact, my high savings rate is a problem I'm trying to fix.)
(note: edited because I thought it sounded a little snippy/hostile (due to being crabby when I awakened this morning) - - intended content the same, but snippiness removed since there was no reason for it!):

When I retire, I will want to save for things like a new roof, a new car, any other things that I decide I am yearning for, or to send money to my daughter now and then, or maybe for an elegant assisted living facility... that sort of thing. Who knows? Maybe I will develop a yearning for travel.

Although many retirees live only on investment income, others mainly rely on COLA'd pensions, annuities, and social security, and so on. They might not even have any investments, though they might save money to invest.
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Old 10-13-2007, 05:52 AM   #4
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We live off of Annuities (isn't that what COLA'd Retirement Pay and SS really is). We save way too much -- but it was a long practiced habit and habits are hard to break. Would putting a number to it help OP? If so saving approximately 2X expenses. ONLY future large expense will be a new car (net of the trade in value of the old one). Maybe nursing home for one or both of us -- probably in denial about that one, but maybe that is a "reason" to save.
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Old 10-13-2007, 07:53 AM   #5
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I don't really save anymore but my spending is way below the 4% level so that money gets reinvested .
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Old 10-13-2007, 11:59 AM   #6
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The basis for the question is that as i am taking ER in November, and we are faced with the transition of moving from accumulation phase to spending phase (retirement), as R Wood pointed out, old habits are hard to break. I could seek out another J**b while my technical skills are still in high demand, and add to the pot, or take the income streams and do a "real" retirement. We are showing some savings right now of the 3%, for a year or so, and then it begins to ramp up as other income streams or investments begin to become available without penalty. DW is woried about the low savings rate for the first year, and even the out years (6), when it approaches 100% of expenses. She and I are looking for that comfort level of overkill for income versus expenses, thus the reason for the question of what the average savings might be in retirment. Once I hit 70 1/2, then I'll have the same problem that twaddle mentioned, due to RMD from IRAs. Our current expense stream projections (I think she has padded this) puts us above the level of converting to ROTH, or at least till I have a couple of years of experience, first, so that will be a problem when we get there. I know these are higher numbers then many folks have, but, being newbies to RE, we are taking the conservative approach, and continuing on the same expense stream that we have while we are working. Just nevousness, but it's real to us right now.
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Old 10-13-2007, 12:14 PM   #7
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My part-time or temp work throughout the year is what I use to fund my Roth IRA up to $5k. My next $5k goes to fund DW's Roth. After that, I dump it in the MMF and it gets spent eventually, but I do not keep track of it after that.
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Old 10-13-2007, 12:15 PM   #8
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I guess I look at the savings issue differently. We plan on our portfolio returning 9% and our living expense is currently 3.5% WR so our savings is 5.5% currently. We plan for major expenses like cars separately. We plan for our budget to increase at 4% per year, so as long as the portfolio achieves 9%, our savings rate will continue to increase every year.
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Old 10-13-2007, 12:18 PM   #9
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I seriously doubt that folks already FIREd are saving nearly as much as they did during their working years when they were building their retirement nest egg - at least in terms of % of salary.

Some folks probably spend to the limit of what their pension/retirement portfolio will support. Others spend less. Those fools who spend more will have to go back to work.

I guess I don't think of this as "saving" - it's rather spending a little less than the retirement portfolio will support, and allowing the portfolio to grow a little extra each year or allowing some extra cash to accumulate in your bank account. Either way provides a little more room for the occasional large lump sum expense.

I suppose this is equivalent of saving up for a rainy day during the working years for the occasional major expense of a new car, or major repair, or home upgrade, or whatever. But the mechanics are quite different.

I doubt there is a "typical" number. But living below your means is just as crucial to financial security during retirement as it is during your working years.

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Old 10-13-2007, 01:23 PM   #10
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Originally Posted by audreyh1 View Post
I guess I don't think of this as "saving" - it's rather spending a little less than the retirement portfolio will support, and allowing the portfolio to grow a little extra each year or allowing some extra cash to accumulate in your bank account. Either way provides a little more room for the occasional large lump sum expense.



Audrey

Exactly !!!
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Old 10-13-2007, 01:38 PM   #11
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I quit saving at least 25 years ago. Since my portfolion will only generate so much, and I have some control over what form this "earnings" takes, I try to pretty closely match ordinary income generated to my ongoing cash needs.

I do try to avoid what I believe may be a common retiree approach of periodically selling a bit of stock to cover expenses. Though this is tax very tax efficient, IMO it is also risky.

Ha
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Old 10-13-2007, 03:11 PM   #12
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. Though this is tax very tax efficient, IMO it is also risky.

Ha

Why do you feel it's risky ?
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Old 10-13-2007, 05:22 PM   #13
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Why do you feel it's risky ?
Complicated and sometimes contentious issue.

Overall, if you choose wisely, income streams are less volatile than capital values. You don't need a market willing to buy what you want to sell in order for you to have the cash you need. You get your scheduled payment- contractually in the case of bonds. And assuming you have chosen wisely and maintained reasonable diversification, you get your periodic stock dividends deposited into your account or landing in your mailbox.

I have owned lots of dividend paying stocks, and I have been pleasantly surprised by dividend increases far more often than disappointed by decreases or suspensions. And I have never had a bond default in 40 years of direct investing.

Meanwhile, market valuations have jiggled up and down, sometimes violently.

Ha
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Old 10-13-2007, 06:44 PM   #14
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Hmmm - am I the only guy who gets hosed by mergers/private buyouts over the years. This year - New Plan Reality and Keyspan. I suppose I could reinvest my original basis - but I will probably not take the equivalent $ out of my trad IRA since I'm not 70 1/2 yet. Not every year - but it seems to have hit in dribs and drabs since 93.

The ORP calculator says I can look forward to getting pranged big time come RMD. But the time compounded says I still come out ahead.

Meanwhile - I'm all over the map spending vs reinvesting.

heh heh heh - trying to up spending the last few years.
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Old 10-13-2007, 10:45 PM   #15
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I don't actually know how much I'm saving at the present time. All of my dividends are reinvested in my mutual funds. I'm taking slightly more than the recommended 4% withdrawal rate, but am not concerned as dw's SS starts in 3 years. The concept of saving money ended when I fire'd a year ago.
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Old 10-14-2007, 08:13 AM   #16
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We have been saving for almost 30 years. I think it is going to be odd and perhaps uncomfortable to spend from the accumulation in ER, although that is why we bulit it up.
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Old 10-14-2007, 10:30 AM   #17
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And add to the unease of spending, by drastically reducing the dollars of additional savings, and that is the basis of my original question.
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Old 10-14-2007, 10:43 AM   #18
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Huh? I'm not really understanding the comments above.

You spend years saving and investing so that you can live off your nest egg. Yes, there is some cultural shock involved in then drawing off that nest egg. It has to last. The culture shock is really even more about no longer having a salary. That really does take some getting used to.

Once you are no longer drawing a salary, you can't "save" in the traditional sense. That option is truly out the window. You gave it up by retiring.

Once retired, the only thing you can do is draw conservatively from your nest egg, invest wisely for the long term which includes investing to counteract inflation, and build up a large enough nest egg before retiring so that it does indeed cover the living expenses you expect to meet the lifestyle you wish to enjoy in retirement.

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Old 10-14-2007, 11:06 AM   #19
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Thanks Audrey, I thought I was the only one confuesed by this thread.

If your spending 4% of your port and the market goes up 20% then you saved some money. On the other hand if you take your 4% and the market drops 20% you didn't save money. How would one know in advance if your going to save money.
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Old 10-14-2007, 12:32 PM   #20
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Quote:
Originally Posted by Want2retire View Post
When I retire, I will want to save for things like a new roof, a new car, any other things that I decide I am yearning for, or to send money to my daughter now and then, or maybe for an elegant assisted living facility... that sort of thing. Who knows? Maybe I will develop a yearning for travel.

Although many retirees live only on investment income, others mainly rely on COLA'd pensions, annuities, and social security, and so on....
Quote:
Originally Posted by R Wood View Post
We live off of Annuities (isn't that what COLA'd Retirement Pay and SS really is). We save way too much -- but it was a long practiced habit and habits are hard to break.
My primary income is from a COLA'd pension, and my other investments are secondary streams for me. I'm actually able to save MORE in ER than while I was employed because my expenses are lower now. While w*rking my savings ranged between about 10% and 20% of my net salary income, and now in retirement I'm saving/investing about 30% of my net pension income. (net pension is 87.7% of my former net salary)

Why do I save so much? Because like Want2retire said, I want to save up for things that I want (travel, cars, hobby, etc), or may need (medical, "elegant assisted living facility", etc). And also because like R Wood said, it's an old habit that's hard to break.....and, personally, one that I prefer NOT to break!

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I seriously doubt that folks already FIREd are saving nearly as much as they did during their working years when they were building their retirement nest egg - at least in terms of % of salary.

I doubt there is a "typical" number. But living below your means is just as crucial to financial security during retirement as it is during your working years.
I'm the oddball that DOES save more....both % and $$!

And although I LBMM, I don't deprive myself of anything that I may want or need!
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